Analysis: An Economic Perspective of Bernie Sanders

Courtsey of Truthout.org, Flickr Creative Commons.
Courtsey of Truthout.org, Flickr Creative Commons.

As someone who views himself as a youngling economist in training, I think the one thing that frustrates me more than anything in the world is probably the incompetence of politicians.

A close runner-up is the public’s perception of economics as a biased politically charged arena where almost anything can go (which admittedly, is a view I once held).

In reality, economists agree and they agree on a lot. Sometimes they have nuanced arguments over the magnitudes of certain effects that are totally lost in public discourse (like the minimum wage). Sometimes they have philosophical differences and preferences that result in them weighting certain effects differently, too.

That being said, I am fairly certain I have more common ground with Paul Krugman than the median self-identifying libertarian. The tendency of politicians (the media and most people in general) of working backwards from their political priors to find economists they agree with is not only unhealthy, but emphasizes divisions between economists far more than they exist. It also gives far too much spotlight to heterodox views, while economists are often ignored on issues consensus exists (rent control, free trade etc.).

I can’t say I ever realized this until I began to study economics in earnest, which probably contributes to my evident lack of political bias, not that (lack of) political bias is the end-all and be-all of who is right or wrong.

With all of this in mind, as the presidential election approaches, I am going to give my best attempt of analyzing the various economic platforms of presidential candidates. I will discuss how candidates differ/agree with economic consensus, which I will attempt to establish when appropriate.

For the record, the focus on economic policy is not because I think that’s the only thing that matters, but because that is the actual area of my study and I feel I have the least likely chance of being incorrect (in contrast, to say, analysing foreign policy).

First on the docket is Bernie Sanders.


Before beginning my analysis of Bernie Sanders, I want to say a few things before I entirely alienate his fans.

I personally like Sanders. He strikes me as someone who is more honest than the median politician. Our views on civil liberties and foreign policy are more similar than most presidential candidates. Unfortunately, that is not really the purview of this analysis.

I am going to try my best to present his opinions as accurately as possible, using his official website as a guide to his views.


Income and Wealth Inequality

Without even beginning to tackle his proposals, Sanders has a lot here that is simply incorrect and/or deliberately misleading with his premise. He makes many assertions about the “1 percent” seemingly hoarding increasing shares of wealth, which is first of all flawed because wealth is not a zero-sum game as he presents (i.e., Bill Gates having more money does not make me or anyone else poorer), but he also uses several incredibly misleading statistics to tell this tale.

Perhaps none more dubious than the following claim:

“Despite huge advancements in technology and productivity, millions of Americans are working longer hours for lower wages. The real median income of male workers is $783 less than it was 42 years ago; while the real median income of female workers is over $1,300 less than it was in 2007.”

This paints an incredibly bleak picture, and it is simply untrue.

As Harvard economics professor Robert Z. Lawrence shows with charts and as Harvard professor Greg Mankiw discusses in brief on his blog, wages have actually tracked quite well with productivity after one makes some incredibly basic statistical adjustments for demographics (such as actually accounting for the significant changes of the typical household size).

The United States additionally already has a tax code more progressive than almost the entire world. While it lags somewhat behind in post-tax wealth transfers, the fact we already are working to alleviate the burden of the poor and middle classes through these transfers should be included as well.

Harvard professor Martin Feldstein summarizes it best, showing once one accounts for these changes, median household incomes have actually increased 53%  since 1980.

It should come as no surprise, that economists are in consensus agreement that Sanders’s figures substantially understates the real growth of median incomes (without even mentioning the tremendous near universal improvements in the quality of our goods or services in this time, which are much more difficult to fully take into account).

All chart images courtesy of the IGM Economic Experts Panel of economists across the political spectrum.

Regardless, let’s examine Sanders’ solutions to this perceived problem. Note, I am only addressing issues I feel confident in responding to.

“1. Demanding that the wealthy and large corporations pay their fair share in taxes. As president, Sen. Sanders will stop corporations from shifting their profits and jobs overseas to avoid paying U.S. income taxes. He will create a progressive estate tax on the top 0.3 percent of Americans who inherit more than $3.5 million. He will also enact a tax on Wall Street speculators who caused millions of Americans to lose their jobs, homes, and life savings.”

The first thing that strikes me here is the insinuation that taxing corporate profits and the wealthy are identical and will produce similar effects. This is wrong. Economists have a great deal of evidence suggesting corporate taxes are regressive in nature, which is when the tax burden disproportionately falls on the poor versus the rich.

Somewhere between about 45-85% of tax incidence (i.e. who pays the tax) of corporate profits falls upon primarily non-supervisorial labor in the long run in the form of reduced wages.  The most accurate estimate in my view places around 70% of tax incidence on labor.

That’s why many left-wing economists actually support eliminating or lowering the U.S. corporate income tax. It is unwise to tax corporations in the name of taxing rich people, because it really does not.

Now, from what I can gather, his estate tax proposal  is actually progressive in nature, and likely won’t have much economic effects (or raise much revenue).

Sanders does not list specifics on his financial transaction tax he proposes here either. Regardless, the evidence is mixed on whether or not this will actually reduce volatility (or whether or not that would actually be a good thing) in financial markets. What is clear, is it’s unlikely to raise much revenue and some countries that experimented with the tax in the past, such as Sweden, decided they were better without it.

“2. Increasing the federal minimum wage from $7.25 to $15 an hour by 2020. In the year 2015, no one who works 40 hours a week should be living in poverty.”

A $15 minimum wage is well outside economic consensus and one would be troubled to find much support from economists. I have previously written in-depth about this here. Sanders loses bonus points for assembling his atrocious list of 200 “economists” who support the proposal.

“3. Putting at least 13 million Americans to work by investing $1 trillion over five years  rebuilding our crumbling roads, bridges, railways, airports, public transit systems, ports, dams, wastewater plants, and other infrastructure needs.”

It is hard to have much of an opinion on this proposal without more information. In general, it’s true the federal government certainly has underinvested (or I would argue, mis-invested is more appropriate) in infrastructure, meaning potential projects exist that could be a boon for the economy.

It is also true the government’s past record in this department has been far from perfect.

I extremely resent the phrase “crumbling roads, bridges…,” which seems to be referring to a commonly cited study by the American Society of Civil Engineers.

First of all, a study by the ASCE may not exactly be the most impartial source of information on infrastructure spending allocations. Regardless, Sanders seems to be mischaracterizing the phrase “structurally deficient,” which just means projects that do not meet current construction standards. This is not the same thing as meaning dangerous or not safe.  Instead, all it means is constructions, notably most bridges, were built before increases in construction standards.

In other words, there are surely infrastructure projects the government can and should be investing in; however, there are valid reasons to doubt Sanders (or Congress) have a good way of determining them. Most “structurally deficient” items as listed by the ASCE likely would generate little to no economic value if replaced.

It is also worth noting the World Bank ranks the U.S. as having the 5th best infrastructure in the world.

“4. Reversing trade policies like NAFTA, CAFTA, and PNTR with China that have driven down wages and caused the loss of millions of jobs. If corporate America wants us to buy their products they need to manufacture those products in this country, not in China or other low-wage countries.”

Here Sanders egregiously ignores pretty much all the economic literature we have on the subject. Economists are in near universal agreement that free trade is almost entirely beneficial. Attempts to restrict it because of its costs to those who may temporarily lose their jobs or suffer a decrease in wages in the short run from trade are extremely misguided.

With regards to NAFTA, virtually every well-done study we have shows it had marginally positive effects on the U.S. and Mexico, with Mexicans proportionally gaining more (which should be noted by anyone who wishes to assist the global poor).

NAFTA did not cause the U.S. to lose aggregate jobs, if anything, we gained more because of it. NAFTA also definitively had a small positive effect on U.S. wages.

Restricting trade with China or Mexico makes about as much economic sense as Michigan prohibiting trade with all other states in the U.S. in the name of protecting “Michigan jobs.”

“5. Creating 1 million jobs for disadvantaged young Americans by investing $5.5 billion in a youth jobs program. Today, the youth unemployment rate is off the charts. We have got to end this tragedy by making sure teenagers and young adults have the jobs they need to move up the economic ladder.”

I have no ideas how Sanders believes he can accomplish this. Regardless, removing laws that restrict entry to the labor force such as the minimum wage or, as recommended by the Obama administration, removing many occupational licensing laws would likely accomplish this task far better at relatively no cost (especially the latter).

Courtsey of Brookings Institution, Flickr Creative Commons
Courtsey of Brookings Institution, Flickr Creative Commons

“6. Fighting for pay equity by signing the Paycheck Fairness Act into law. It is an outrage that women earn just 78 cents for every dollar a man earns.”

Although wage discrimination against women through institutional biases likely does exist in the United States, the 78 cents figure grossly exaggerates reality. A far more conservative estimate would be around 95-97 cents, which one arrives at after controlling for working time (the median woman tends to work less than the median man) and job roles. There is also little evidence that suggests enacting the “Paycheck Fairness Act” into law would do much in terms of correcting the institutional biases that do exist.

“7. Making tuition free at public colleges and universities throughout America. Everyone in this country who studies hard should be able to go to college regardless of income.”

There is little mention of the costs this proposal would bring, which surely would be significant. The economic literature is mixed on the benefits of free higher education, though if the United States did implement such a system, higher education would surely look more like the tiered structure in Germany than the much more open-ended U.S. system.

Additionally, there is not much evidence we have suggesting any significant credit-related restraints on those who wish to attend college, especially with Pell Grants and other forms of financial aid available for students who are impoverished.

A college education still yields a huge return for its investment, on average something to the tune of 15.2% per year and anecdotes aside, the vast majority of graduates are more than capable of paying back whatever loans they take. However, at a time when only 56% of Americans are graduating from universities within six years, I remain entirely unconvinced free higher education is going to allow more students to realize a college education.

In short, although I imagine Sanders is underestimating the costs of this proposal, I am more open to it than his others. I still doubt it would approach anything near a panacea and I doubt it is a reform the education system truly needs. I am also unsure why Sanders thinks taxpayers should fully fund the tax bill of Donald Trump’s progeny.

“8. Expanding Social Security by lifting the cap on taxable income above $250,000. At a time when the senior poverty rate is going up, we have got to make sure that every American can retire with dignity and respect.”

According to the 2014 Social Security Trustees report, the combined disability and retirement trust funds will be exhausted by 2033. Taxing the wealthy significantly more would be one albeit costly way of ensuring upcoming generations do not face negative returns on their Social Security payments (in other words, receive less than they pay in).

A far better way would be to grant, at the least, choice as to how Social Security funds are to be spent by those who pay them. Market returns to savings investments are far, far greater than the returns to Social Security as is, regardless of whether they are invested in stocks or bonds. Although full analysis of this issue is best reserved for another day, it seems to me to be a sick joke that Americans seem content with allowing our seniors to receive far less than what is possible through the market usually through false concerns of risk or “gambling” our seniors’ savings.

There is a reason Denmark, the United Kingdom, Sweden, Singapore, Australia and many other nations have, to varying extents, “privatized” their Social Security equivalents. The U.S. is archaic and lagging far behind the world leaders in this department and the question should no longer be “Should Social Security be privatized,” but “To what degree should Social Security be privatized?”

Most countries have migrated to a multi-tiered system with a means tested pension system to ensure an income floor for seniors will exist, while mandating savings (either at the individual or occupational level).

That is a conversation worth having and I see no evidence Sanders would want the U.S. to move in that direction.

“9. Guaranteeing healthcare as a right of citizenship by enacting a Medicare for all single-payer healthcare system. It’s time for the U.S. to join every major industrialized country on earth and provide universal healthcare to all.”

Healthcare is a strange beast and I’m not going to pretend I have the answer to optimal healthcare policy. Regardless, I would argue Obamacare is likely representative of the median economist’s preferred healthcare policy given political constraints. From my anecdotal research, Singapore and Germany are generally touted as having the best healthcare systems in the world and Obamacare moved us more in their direction.

There is an important difference to note between universal healthcare and single-payer healthcare. Universal healthcare means ensuring everybody in the United States in the country has access to affordable healthcare. Single-payer healthcare means the government is the sole payer of all healthcare. This distinction is important, as the latter is far more expensive than the former and of those countries with universal healthcare, most do no use single-payer systems.

The single-payer universal healthcare act in Congress has a projected $15 trillion increase in healthcare expenditures over the next ten years. As the number of uninsured adults continues to drop, the United States will have virtually universal healthcare in the same time regardless of whether or not the bill is passed.

The huge increase in expenses single-payer healthcare would bring explain why Sanders’s progressive state of Vermont was forced to abandon its pursuit of universal healthcare last year.

Additionally, it’s extremely important to emphasize healthcare costs are currently far and away the primary driver of the U.S. federal government’s debt. Reforming Medicare and Medicaid spending are critical to the continued fiscal sustainability of the United States. Not only does Sanders not address this problem, but he is actually making it orders of magnitudes worse.

Climate Change & Environment

Sanders does not have any real meat on his proposals in this department, but his rhetoric is generally solid, certainly an improvement over his “Income and Wealth Inequality” section.

Taxing goods with negative externalities, i.e. those with a net negative cost to society that exceeds the cost consumers pay for it, has widespread support from economists (especially when those costs to society are comparatively large). It should therefore come as to no surprise economists are in more or less universal agreement that a carbon tax, such as that supported by Sanders, is one of, if not, the most effective policy available to politicians in order to combat climate change.

Funding research and alleviating regulatory burdens upon comparatively green energy are critical policies for the future as well (I think the latter is especially true with regards to nuclear technology). Even though mass funding of existing green goods/services is well-intentioned, existing green technology is far too costly with far too little benefit in my eyes to do much besides enriching green firms and producing more Solyndra boondoggles.

Overall, Sanders is still better in this category than the median presidential candidate, albeit largely due to Republicans distorting the field.

A Fair and Humane Immigration Policy

Immigration reform is probably the lowest hanging fruit in terms of a virtually universally beneficial policy at a relative small cost. A worldwide liberalization of immigration policy would annihilate global poverty, with global GDP realistically increasing between 30-60% on the low end, to gains potentially as high as 100-120%.

Some of Sanders’s rhetoric on immigration has personally bothered and surprised me (and progressives like Ezra Klein), but based on the proposals he lists on his website, I think most of it can be chalked up to “harmless” populist appeals to unions, who are generally anti-immigration. His actual proposals are potentially the most liberal among current presidential candidates.

I’ll dig more into immigration when analyzing a certain other presidential candidate, but there is no economic basis for supporting restrictions on highly-skilled immigrants. More engineers and doctors will virtually always be good.

 

Low-skilled immigrants are a different story, but most economists agree even low-skilled immigrants are a benefit for most Americans. The picture becomes a little more muddled when examining solely similarly skilled Americans, some of whom may be worse off.

Still, offsetting costs to natives seems to me to be a reason to potentially tax low-skilled immigrants, if anything, not to severely restrict their entry.

With that in mind, Bernie’s proposals to authorize the 11 million undocumented workers in the U.S. (like Reagan did years ago mind you), sign the Dream Act into law and to oppose any attempt to construct a fence at the Mexican (and presumably Canadian) border are all undoubtedly beneficial and good economics.

My only caveats here are I think he is I think he is too pessimistic on temporary work programs and viewing them as exploitation is an incorrect framework, while arguing NAFTA was somehow detrimental to the average Mexican is ridiculous, when it is agreed the average Mexican benefited proportionally more than the average American or Canadian. None of Mexico’s macroeconomic woes can be attributed to NAFTA, which even if in a hypothetical world where it produced negative outcomes for Mexicans, was a relatively minor act of trade liberalization to begin with.


 

Final Thoughts

Overall, despite Bernie’s solid, especially in contrast to some of the other contenders, immigration and environmental policies, his main economic reforms (most notably single-payer healthcare) are absurdly expensive. He also seems to believe these expenses could be financed solely by increasing taxation, mainly upon the wealthy and through financial transactions. Economists agree raising taxes upon the wealthy wouldn’t come close to closing future projected budget shortfalls as it stands today.

Good luck trying to fund an $18 trillion budget increase over the next ten years without massively raising the taxes upon everybody, especially the middle class. I’m personally shocked by some of the objections that have arisen over the WSJ’s projected increase of $11.5 trillion in the budget shortfall of Sanders’s proposals. Those spending projections are pretty much in line with the government spending/GDP ratio of the Scandinavian countries Sanders says he wishes to emulate. In my view, if anything the WSJ is being too fair here.

Yet, even though Sanders says he wishes to emulate these Scandinavian countries, he doesn’t wish to emulate any of their market reforms, including at least partial privatization of Social Security, lower barriers to entry for most occupations and smaller regulatory burdens, while he sticks to incredibly antiquated positions against free trade. Although I don’t exactly trust the Heritage Foundation, there is a reason it ranked Denmark ahead of the United States in its most recent economic freedom index and it is not like Sweden or Norway are lagging that far behind either.

It is also telling Sanders hired heterodox economist Stephanie Kelton as his chief economics advisor. Kelton is a leading proponent of a fringe school of thought known as Modern Monetary Theory. If I were to summarize MMT in a short way people could understand it, it is basically the belief governments can spend as much as they want without consequence (namely, hyperinflation) as long as they are fully in control of their own monetary policy, which the United States is.  Of course it is more nuanced than that, but it is still an incredibly whacky claim unsubstantiated by the data. Progressive economist Paul Krugman has more.

I’ll generously give Sanders’s economic policy a D- for what I perceive to be his solid takes on two real issues in need of reform that I think are in the window for change (immigration and climate change), while disastrously failing at a number of basic economic principles.

If you are further interested in Bernie Sanders, see here for a follow up analysis of his specific proposals. For more economic analysis, see Donald Trump or parts one and two of Rand Paul’s economic policy. Wyatt Bush is the assistant editor of CMU Insider. You can contact him at wyattbush@gmail.com.  


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